RIL, other Coal Bed Methane producers get pricing, marketing freedom

Through the April 13 notification, the oil ministry said a coal bed methane (CBM) producer has to call for open bids for sale of coal gas and seek price quotes to discover the market price.PTI | April 16, 2017, 13:38 IST

New Delhi: Reliance Industries and other producers of coal bed methane have been granted pricing and marketing independence as well as permission to sell fuel to affiliates after the formal policy notification.

Through the April 13 notification, the oil ministry said a coal bed methane (CBM) producer has to call for open bids for sale of coal gas and seek price quotes to discover the market price.

The producer will have to issue advertisement in national dailies and run a competitive bidding to arrive at the arm's-length sale price, it said.

The process prescribed is the same as the one Reliance Industries had run in 2012 to discover a price for CBM gas it is to produce in Madhya Pradesh.

It had sought bids for 3.5 million standard cubic metres per day of coal gas from its Sohagpur CBM block in Madhya Pradesh at a benchmarked rate at 12.67 per cent of JCC, or Japan Customs-Cleared Crude, plus USD 0.26 per million British thermal unit.

The formula was the same at which Petronet LNG, a joint venture of public sector oil companies, whose chairman is the oil secretary, used to buy long-term liquefied natural gas (LNG) from Qatar.

At USD 100 per barrel oil price prevalent that year, CBM from RIL's Madhya Pradesh block was to cost USD 12.93 per mmBtu. At USD 55 a barrel rate currently, it would cost USD 7.2.

That formula was, however, rejected by the ministry even though 59 valid bids seeking about 70 mmscmd of gas were received in the open tender.

"In the event of market-discovered price being less than the price notified by the Petroleum Planning Analysis Cell (PPAC) under the New Domestic Natural Gas Pricing Guidelines, 2014, the royalty and production level payment (PLP) shall be paid on the basis of the latter," the CBM pricing policy notified last week said.

The PPAC notified price of gas for April 1 to September 30 at USD 2.48 per mmBtu and the same for difficult areas is USD 5.56 per mmBtu, lower than the rate in RIL formula.

"Sale of CBM to any affiliate of the contractor is permitted, in the event the contractor cannot identify any buyer following the procedure (of open bidding)," the policy said, adding that the reasons for sale to affiliates will have to be notified to the Directorate General of Hydrocarbons (DGH).

The policy is expected to incentivise the CBM operation in the country to boost gas production.

Of the 33 CBM-bearing blocks awarded so far in four auction rounds and on a nomination basis, gas is being produced from only four.

The four CBM blocks in production have a combined output of 1.17 million standard cubic metres per day. As many as 18 blocks have either been relinquished or are in the process as operators found that it did not make economic sense to produce gas at the prevailing rates.

According to the DGH, India has the fifth largest proven coal reserves in the world and holds significant prospects for exploration and exploitation of CBM. The estimated CBM resources in the country are about 92 trillion cubic feet.

The 33 CBM blocks awarded so far hold a total of 62.4 tcf of the estimated resources, of which so far, 9.9 tcf has been established as Gas in Place (GIP).

The pricing freedom will help quickly ramp up CBM gas production to targeted 5.77 mmscmd within a year, officials said.

“To save the environment and to fight climate change, my government has planned a major campaign. By 2022, we want to generate 175 GW of renewable energy. In the last three years, we have already achieved 60 GW or around one-third of this target,” he said.